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China Moves to Discipline Local Financing Platforms

China’s financial regulatory authority recently issued a document imposing strict restrictions on the products and services that can be provided by the locally established financing platform – the financial asset exchanges (FAE). The move may deal a blow to real estate companies and urban investment companies that have resorted to these exchanges as a financing channel in recent years.

The financial asset exchange is a financial asset trading service platform set up with the approval from local governments (provincial and municipal governments).

According to a Reuters report, this document forbids local FAE’s from cooperating with e-financing and real estate companies that are subject to state regulatory restrictions. It also obliges FAE’s to stop providing passages for financial or non-financial institutions to circumvent regulatory requirements such as the scope of investment and leverage constraints.

The document also pointed out that the local FAE’s are not allowed to sell products, in any fashion, to individuals, and that they are not allowed to issue, sell or trade financial products and private equity products under the supervision of the central financial authorities.

Since 2010, China’s local governments have been setting up FAE’s, originally to solve the financing problems of local small and medium sized enterprise. However, many FAE’s were involved in a number of illegal fund-raising activities and were subsequently subject to strict regulation. In recent years, FAE’s are becoming an important financing channel for real estate companies and local government owned infrastructure investment entities. The new document is believed to put a brake on the new waves of housing and infrastructure development.

Source: Central News Agency, September 13, 2020